Reliance Jio’s break even might get delayed with new tariff plan

Mukesh Ambani-led Relaince Jio changed its tariff plan on Tuesday after the telecom regulator asked it to discontinue its Summer Surprise offer, which was extending the free services for three more months, ending in June.

A Reliance employee demonstrates Jio LYF phone at their headquarters on the outskirts of Mumbai.(REUTERS)

Mukesh Ambani-led Relaince Jio changed its tariff plan on Tuesday after the telecom regulator asked it to discontinue its Summer Surprise offer, which was extending the free services for three more months, ending in June.

Any user of the Summer Surprise offer would have to pay Rs 303 for 28 days, after the end of the three months complimentary period. That has changed to Rs 309 for 84 days, with voice, SMS and unlimited data. Data offered at 4G speed is capped at 1GB per day for the period, beyond which the speeds will come down to 128 Mbps, which is half of the defined broadband speeds in the country.

If the complimentary period is excluded, and the paid tariff of the Summer Surprise is compared to the new Jio Dhan Dhana Dhan plan, Reliance Jio will charge Rs 103 for 28 days of validity compared to Rs 303 for the same period.

This is extend the break even of the company by up to two to three years. According to Morgan Stanely, the New York-headquartered financial services firm, if Reliance Jio increased it tariff, the company could have been profitable by 2020 (See table).

If it decreased its average revenue per user (ARPU), it would continue to make high losses. Even at the tariff plan introduced with the Summer Surprise, the company would not have been profitable by 2022.

RELIANCE JIO

As per Summer Surprise tariff

2018 (Estimate)

2019 (E)

2020 (E)

Revenue

$2,704 mn

$4,143

$5,884

Profit after tax

- $1,940

- $1,570

- $854

If ARPU decreases

2018 (E)

2019 (E)

2020 (E)

Revenue

$1,956

$2,748

$3,642

Profit after tax

- $2,711

- $4,534

- $2,730

Source: Morgan Stanely

Other brokerages have also forecasted Reliance Jio’s long gestation period. “We expect Jio’s subscriber base to increase to 211 million by end of 2022-2023, while modelling ARPUs to remain stable around Rs245 to Rs 250 per month. We expect Jio to break even at cash level by 2020-2021 assuming a reasonable recurring capital expenditure and profit before tax by 2021-2022 assuming a robust increase in EBITDA margins to 43% by then,” according to Kotal Institutional Research.

Reliance Jio, market experts said will continue to be a price warrior in Indian telecom, and that might continue to hurt the sector for a longer run.

“Our checks had shown that while incumbents had introduced plans to counter Jio, these were not being marketed aggressively. This could now change. Our analysis had shown that telecom sector revenues could be impacted by +5% to -8% with a downward bias across various scenarios of conversions to the plans introduced by Jio as well as incumbents,” according to a report by Citi, titled, “Jio: Proving the Naysayers Wrong”.